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The 3 Critical Things About Social Security Most People Don’t Understand

Category: Financial and taxes in retirement

January 9, 2020 – Most of the people who took the new version of our popular Social Security IQ Quiz were able to get a passing score of 60%. But there were 3 questions that many people had a lot of difficulty answering correctly. That lack of knowledge, unfortunately, could cost them significant amounts of money over their lifetimes.

Underestimating your Social Security benefits will cost you money

These were the Social Security questions that most people missed, along with the correct answers and more detailed explanations:

  1. How many earning years are used to calculate your Social Security retirement benefit.

Only 49% of quiz takers got this answer correct. The choices were 25, 30, or 35 years – the correct answer was 35 years. While that might not seem that important a detail, it is.

Most people underestimated the number of years used in the calculation. To earn any benefit at all, the minimum number of earning quarters is 40 (10 years). But after you reach that important level, your goal should be to try to get as many years of earnings as you can, in order to replace any zero or low earning years with ones where you earned more. It might be that you had some years of low earnings or you were out of the workforce for an extended period; if you can it would be worthwhile to work longer and boost your earnings calculation.

2. How big a difference will there be in your benefit if you claim when you first can at age 62, versus waiting until 70?

Most quiz takers seriously underestimated how big the difference is between taking their benefit at first eligibility (age 62) vs. waiting until age 70. The question assumed a hypothetical person whose Full Retirement Age (FRA) was 66.5, and whose FRA benefit was $2000/month. The monthly choices we provided were $275, $506, or $1110. We were disappointed to see so many folks underestimate the amount they could get by delaying their benefits from age 62 to 70. Just about as many people (40%) chose the middle choice ($506) as the 44% who picked the correct answer ($1110), a monthly increase twice as high. One other thing to remember: your surviving spouse gets 100% of your benefit (if higher than theirs), so if your spouse outlives you for a long time the benefit of waiting is even greater. (See Full Retirement Age Chart)

If you can afford to wait and have at least an average life expectancy, it is usually a good idea to delay claiming. See SSA’s calculator to determine how early claiming will affect your situation. Claiming at 62 with a FRA of age 67 results in a 30% reduction in the FRA benefit. If you can delay taking until age 70, your benefit will increase 8% per year over the FRA figure.

 3. How much can you receive as as a spousal benefit based on your spouse’s Social Security record?

The correct answer is that you can receive a spousal benefit that is 50% of your spouse’s benefit if you start collecting at your Full Retirement Age. But if you choose to begin receiving spouse’s benefits before you reach Full Retirement Age, your spousal benefit amount will be permanently reduced. Only 51% knew the correct answer, and if they acted on that knowledge, would get a much smaller benefit for the rest of their lives. Some 40% incorrectly thought that they could get a 50% benefit if they took the spousal benefit at age 62 (which actually could be as small as 32.5%). See SSA Spousal Benefit.

Bottom line

Understanding when to claim Social Security retirement benefits is a very important decision that requires knowing how that benefit is calculated. Take the matter seriously and make sure you know the facts.

For further reading:

Comments? What questions do you have about taking Social Security? Please use the Comments section below to share your thoughts and concerns.

Posted by Admin on January 9th, 2021


  1. Due to many health issues, non life threatening but increasing chronic pain due to spinal injuries, i retired as soon as possible figuring as I aged I wouldn’t be able to live the life I wanted. I’m now 71 and I was correct. But it is relative. Meaning my life used to be one of adventure, which actually is a lot of hard work. Now that I’m only able to hike or bike for a couple hours a day instead of all day I laugh at the fact that I’m now just lng the boring inactive life of most people. Also, too many people never make it to 70. I’ve known several.
    So life is not just about money.

    by Bob — January 14, 2021

  2. My husband will be reaching FRA this year in May. I read a timely newsletter that stated if you were born in the beginning or middle of the year that it would be wise to start taking your social security in January instead of waiting for FRA. Our financial advisor reiterated the same idea. So my husband filed to start as of yesterday. He will receive $100 less a month, but it will take 14 years to make up the money that we will receive prior to his FRA.

    by Kathi — January 15, 2021

  3. For what it’s worth, people should also research for themselves instead of relying solely on a Social Security representative to explain the options. I’m sure there are many great reps, but the one that handled my application did not mention my options. He just assumed that I wanted the highest benefit (my own) and didn’t mention the widow’s benefit until I raised it myself. Good thing that I had done my own research! I took the widow’s benefit at 65 and deferred taking my own benefit. Since my own benefit was near the maximum benefit payable, the 8% growth on top of CPI increases was a good bet at the time based on health and life expectancy. I’m now in the process of switching to my own benefit at 68 instead of waiting to 70, in view of the pandemic and the fact that I’m finally feeling old/less healthy. Heck, we’re all playing the odds here.

    My rep also didn’t mention that SS Pt. B premiums would be deducted from the check — or that the payment date is based on your birthday. Small things, but it they can affect retirement planning and budgeting.

    by Kate — January 19, 2021

  4. Sometimes you have to think beyond “how much money can I get” and figure out how much money you need. My Hub and I started collecting SS at ages 62 1/2 and age 63. Our Social Security checks are above average and not the lower end of the scale. With the two SS checks per month and a yearly withdrawal from IRA’s divided into 12 monthly payments we do okay. My Hub has a small pension too. That money doesn’t get added to the checking account but in another account for things like yard clean ups in the fall and spring, plowing, household repairs. Things of that nature. We are slowly pecking at our IRA savings and not depleting it in the early years if we had chosen not to take SS till age 66 or beyond. For us, it was the right decision. In the meantime, since the Hub retired, he has had a few medical issues so that is another reason to retire early. Now Covid is upon us and the older you are, there is more chance from dying from it. So, we are glad to be out of the work force for that reason alone. Yes, it is good if you have lots of money and can wait to collect on SS but I am guessing most people are going to take SS before FRA due to losing their job and not being able to find another one, illness or just totally burned out. The other thing is that people want to enjoy life and finally do things they have dreamed about during their working years chained to the job. There are plenty of ways to live on less money. If you want to retire early, you have to analyze your monthfly, yearly bills. You don’t have to continue to live in the McMansion you have been living in if it prevents you from retiring early. Sell it and buy something smaller. Put the excess money from the sale in the bank. People can pinch pennies by watching sales at grocery stores. Lavish vacations can be scaled down. It is kind of fun to find the bargains. There are ways to cut costs like if you are driving less, you may be able to lower your auto insurance costs. I switched insurance companies before retirment on house and vehicles and saved close to $900 then once retired, we drive less and got a further reduction. Don’t take it for granted that what you are being charged is the best or only price. Call the companies and see if they have a better package. I have a Costco Visa card and charge about 95% of all my bills on it and all my purchases per month on it. You name it, I charge it At the end of the year I get reward money. This year will be around $600. Not a fortune but I would be paying my bills anyway and buying groceries and other things anyway so why not get rewarded! I pay off my CC religiously each month, never a balance. If you can’t pay off your CC each month, do not do this! One thing I have not done yet but I have read that buying a new car is the biggest waste of money. It is best to buy a car that is one or two years old. My car is 12 years old with low milage. I plan to hang on to it till it falls apart. If I were to go on a trip and a bit wary of my ‘old’ car, I would rent a brand new car! A one time expense.

    There are ways to live frugally, collect a lower SS check and retire early.

    by Louise — January 24, 2021

  5. Louise:

    Great tips, many of which I adhere to. My car is a 2008 VW Jetta SE that I bought when I was working full time in 2007. It has only 16,000 miles on it–still brand new. I make sure it is maintained, but as you can tell I do not drive that much as everything I need is nearby.. It was one of the last models that Volkswagen made that does not have GPS or excessive computerized functions. It is loaded for the time I bought it, and as long as it stays in good shape, I will keep it. We have lots of transportation options here in Washington DC near the Maryland border, but with Covid, I am glad to have my car. I was forced to take my SS at 63.5 years of age and I could not find a full time job after being forced out of my previous job. My SS checks are above average as well and I am grateful for that. A part-time job, three days a week, helps me to pay any bills and to save for the future as well. When this gig ends I will work in a nurse related job two days per week and possibly online for an insurance company .Part-time work was easy for me to find however many have NO benefits. Now at this stage of my life at 66 years of age, my work has to have an element of fun for me or I will not do it. It is amazing what a person can do without and still have a great life. I love the thrill of a bargain and never pay full price for anything. So far, so good.

    by Jennifer — January 25, 2021

  6. I have read articles from multiple news outlets that the new government is exploring if you have over $3 million combined in 401(k), IRA, Money Market, Savings, etc. they may levy an extra tax on the excess over and above the normal income tax. If that becomes law then it may be wise to wait until FRA or better yet 70 to draw SS and in the meantime draw down some of the 401k/IRA to get below that $3 million penalty level. Not law yet but various articles indicate the Progressives are pushing Biden in that direction so we shall see what transpires.

    by Danno — January 25, 2021

  7. Louise, I had to get to the end of your post before I knew it was not from my wife. LOL!

    by RichPB — January 25, 2021

  8. RichPB, I take that as a compliment and your wife is a good example of being frugal I assume!

    Trust me, in my younger working years, I did not lead a frugal life at all. Wish I did! I bought new cars, bought time shares, went on extravagent vacations, spent money on foolish things. However, My Hub and I did have really great jobs for many years, no kids and saved diligently in 401k’s and IRA’s. Over time, I curbed my spending, unloaded my timeshares and now look for bargains. In one way I am glad I was able to have fantastic vacations. It was exilerating and I was totally addicted to it. Now, we have not been on vacation since 2004 and I have no real desire anymore. Of course if I won the lottery, I would surely do something foolish! Now my thrill is buying bargain turkey’s at Thanksgiving from my local Stop & Shop for $0.59 a lb, chickens on sale and hamburger on sale. Making excellent restaurant quality foods at home and enjoying every day living.

    We built our home in 1975 and still live in it. It isn’t my dream home but it is all we need. I would love to have a more modern home with all the bells and whistles but that isn’t going to happen. Our home is spacious and our taxes are very affordable. We live on an acre of land but wish it was more. If we were to live in a condo or apartment we would hate it. Plus, the cost would be much more than our paid off home. So, we all live with wishes and dreams of what we would love to have but maybe what we have is all we need!

    I know all people are not in the same boat as me. Many families have not been able to save for retirement, divorced women may have joined the work force later in life after raising children. It is a huge struggle and those people will suffer financially if they don’t stay in the work force to get the extra 8% a year that SS will give them by waiting to draw the money.

    What makes it worse is that companies seem to analyze their workers ages and have work force reductions. I was one of those people. At age 58 the company had a reduction in work force. UGH! I do feel my age was a factor and another thing that I think they look at is that I was saving 22% of my pay in 401K. I do think they said mmmm, if she can save that kind of money, she won’t suffer getting laid off. Of course, I was at the tail end of my working years and I was trying to pump up my 401k. Every raise I got, I put into 401k.

    So, that is why I took SS early. I could not fiind an equivalent job or even one that I could ‘deal’ with for a few years. It was a bad time then to lose a job. I collected unemployment for 73 weeks.

    Collecting SS is a personal decision and I am so glad that the Goverment is flexible on when you can collect. What works for me may not work for you or others. Taking SS early and getting a large reduction to your monthly check may not be wise for everyone.

    My Father retired at age 62 and only lived till two weeks before he was 66. In fact, they yanked his last SS payment out of the checking account. I still do not get that!

    You just don’t know how long you will live or how healthy you will be. Everyone needs to analyze their finances, health and desires. We are all different and each of us has to evaluate our situation. Don’t compare yourself to your best friend or one of your neighbors or uncle Jimmy. Your situation could be similar to someone else but very different too.

    Wishing we all make the right decisions!

    by Louise — January 25, 2021

  9. Louise, again there are similarities, but we varied from you by not having really good paying jobs to start but took opportunities to make improvements. That took a lot of work and we had few options in the earlier years to spend — so we continued the relatively frugal life our parents taught us. Our situation improved, but we continued managing our affairs, with advice from a friend, put all we could in 401K instead of increasing spending, (but also, over time, took advantage of occasional travel options partially supported by business travel), paid off early the home we built in 1992 (and still live in), and retired by the skin if our teeth at 55 taking SS at 62. Continued tracking, budgeting and managing our spending along with holding off on drawing from our limited retirement investments have paid off so that we can live comfortably (not at all extravagantly) in our later years.

    Why do our stories matter to any one else? As you said, some may not have had the discipline or luck to have a decent retirement. But even starting late (30s, 40s, 50s…), it possible to get on the right track– the earlier the better, but 40s may be the best most can manage. And it continues into retirement. Some may retire in luxury. I think our stories and those of many others here show that luxury isn’t needed for happiness and that comfortable can be obtained even if it isn’t immediately available on first retiring.

    by RichPB — January 26, 2021

  10. Folks, I am afraid we have gone off the rails on this thread, even though it is an interesting one. The topic here is Social Security. Living with budget discipline is another topic that we have explored and would like to continue elsewhere. This topic is the place to continue this discussion, please.

    by Admin — January 26, 2021

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